Electrocomponents plc ANNOUNCEMENT OF INTERIM RESULTS HALF YEAR ENDED 30 SEPTEMBER 2010 12 NOVEMBER 2010 DELIVERING FOR OUR CUSTOMERS
Agenda Overview and current trading Ian Mason Financial performance Simon Boddie Strategy update Ian Mason Continental Europe Klaus Göldenbot Q&A All 2
Key themes Continued strong underlying sales growth Strategic initiatives driving improved performance Transforming the customer experience in Electronics Accelerating ecommerce performance Taking share from smaller competitors in Maintenance Stable gross margin in H1 and excellent operating leverage Pre-tax profits more than doubled 3
Financial highlights Strong sales growth 24%, all regions double digit Excellent operating leverage 5% pts. improvement, all areas PBT more than doubled 50.5m, 104% Increasing return on sales 3.4% pts. improvement, 9.5% Strong free cash flow 33.6m, 96% conversion Robust financial metrics 22x, 1.2x Excellent progress on all key metrics 4
Strategic highlights International growth 70% share, 30% growth, Electronics transformation DesignSpark, Customer perception ecommerce leadership 48% share, 42% growth Maintenance strength Stock advantage, 19 large account wins Regionalisation benefits Marketing intensity, operating efficiency UK profitability 24% growth, incremental revenue streams Strategic initiatives driving improved performance 5
Current trading Underlying sales growth FY11 Q1 Q2 H1 October Continental Europe 22% 25% 23% 21% North America 43% 40% 41% 38% Asia Pacific 30% 25% 27% 21% International 30% 30% 30% 26% UK 12% 16% 14% 12% Group 24% 25% 24% 21% Strong October performance 6
Sales per day International SPD 3,300 3,100 2,900 2,700 2,500 Group SPD 2,300 2,100 1,900 4,500 1,700 4,000 ƒ 1,500 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1FY11 Q2FY11 000 sales per trading day (constant foreign exchange) 3,500 UK SPD 3,000 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1FY11 Q2FY11 1,550 1,450 000 sales per trading day (constant foreign exchange) 1,350 1,250 1,150 1,050 950 850 750 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1FY11 Q2FY11 000 sales per trading day (constant foreign exchange) Group sales 8% above 2008 levels (1) (1): constant foreign exchange 7
Agenda Overview and current trading Ian Mason Financial performance Simon Boddie Strategy update Ian Mason Continental Europe Klaus Göldenbot Q&A All 8
Basis of preparation Unless otherwise stated: Figures have been prepared using International Financial Reporting Standards (IFRS) Changes in revenue are adjusted for exchange rates and for the number of trading days ( underlying sales growth/decline ) Changes in profit, cash flow, debt and share related measures, such as earnings per share, are at reported exchange rates The Group has reviewed the allocation of costs associated with its component and production packaging offering. As a result costs which were previously charged in the UK where the work was undertaken have been reallocated to the reporting segments where the products were sold in the prior and current periods. This reallocation has no affect on any of the Group s profit measures. An analysis of the prior period reallocations is included in the financial appendices 9
Profit and loss account H1 H1 ( m) 2010/11 2009/10 Change Revenue 563.3 447.2 24.4% (1) Operating profit 53.6 27.2 97.1% Interest (3.1) (2.4) (29.2)% Profit before tax 50.5 24.8 103.6% Return on sales 9.5% 6.1% 3.4% points Profit more than double last half year (1) Underlying revenue growth adjusting for currency and trading days 10
Group pre tax profit increase Contribution growth (1) 62% 24% 9m (8)m 26m (1)m 51m m 25m H1 2009/10 International UK Processes Interest H1 2010/11 Strong International and UK contribution growth (1) Constant foreign exchange 11
International contribution ( m) H1 2010/11 H1 2009/10 (1) Change (constant exchange) Revenue 391.6 296.4 29.6% (2) Operating costs (112.4) (98.4) (12.1)% Contribution 67.9 42.0 62.1% Operating cost % (28.7)% (33.2)% 4.5% points Contribution % 17.3% 14.2% 3.1% points 62% International contribution growth (1) Restated (2) Underlying revenue adjusting for currency and trading days 12
International contribution increase Contribution growth (1) 42% 97% 118% 11m 4m 68m 11m m 42m H1 2009/10 Continental Europe North America Asia Pacific H1 2010/11 Significant contribution growth in all regions (1) Constant foreign exchange 13
UK contribution ( m) H1 2010/11 H1 2009/10 (1) Change (constant exchange) Revenue 171.7 150.8 13.9% (2) Operating costs (35.6) (38.8) 8.4% Contribution 47.8 38.6 23.8% Operating cost % (20.7)% (25.8)% 5.1% points Contribution % 27.8% 25.6% 2.2% points 24% UK contribution growth (1) Restated (2) Underlying revenue adjusting for trading days 14
Gross margin Year on year decline of 1.9% pts. Electronics price repositioning Foreign exchange North American mix New revenue streams Stable gross margin in H1 Competitively priced Foreign exchange stability Selling price increases Cost price reductions New revenue streams 50.0% 45.0% 40.0% Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Underlying gross margin stability 15
Operating costs Costs: % sales H1 H1 2010/11 2009/10 Change International 28.7% 33.2% 4.5% pts. UK 20.7% 25.8% 5.1% pts. Processes 11.0% 11.9% 0.9% pts. Total 37.3% 42.6% 5.3% pts. Drivers of operating leverage Fixed cost leverage Supply chain costs Offline costs Second half 4m incremental investment Costs reduced by 5% points of sales 16
Supply chain costs Supply chain actions NPI programme Maintained stock turn High service levels European Supply Chain costs % sales 13 12 Cost reductions Central management of transport UK freight carrier change UK warehouse specialisation Planning efficiencies % 11 10 FY09 FY10 H1 2010/11 Costs reduced by around 0.75% points of sales over the last 2 years 17
Offline costs Cost reduction drivers First half impact in UK Migration of transactions online ecommerce share 48% to 52% Customer services migration online Customer service 4% reduction Reduction of catalogue costs Catalogue costs 30% reduction Increase in online marketing Marketing 10% increase Offline costs reduced 18
Earnings per share ( m) H1 2010/11 H1 2009/10 Change reported Profit before tax 50.5 24.8 103.6% Effective tax rate 31% 31% - Per share amounts Reported earnings 8.0p 3.9p 105.1% Interim dividend 5.0p 5.0p - More than doubling of earnings per share 19
Cash flow ( m) 2010/11 2009/10 H1 H1 Profit before tax 50.5 24.8 Depreciation 13.2 13.3 Employee share options / non-cash mvts 1.5 1.0 Finance expense (net) 3.1 2.4 Working capital (13.1) 18.8 Cash generated from operations 55.2 60.3 Interest paid (net) (2.3) (1.9) Tax paid (9.6) (9.5) Net capital expenditure (9.7) (6.2) Free cash flow 33.6 42.7 % of profit after tax 96% 250% Nearly 100% cash conversion 20
Working capital H1 H1 ( m) 2010/11 2009/10 Comment Inventories (26.6) 4.8 Stock turn maintained Trade receivables (2.3) 10.2 Debtor days flat Trade payables 15.8 3.8 Creditor days increased Trade working capital (13.1) 18.8 2011 cash considerations Full year capex around 22m including Allied ERP Sales trend impact on working capital Working capital metrics maintained 21
Net debt H1 ( m) 2010/11 Net debt as at 1 April 2010 (172.1) Free cash flow 33.6 Dividends paid (26.1) Translation differences 2.1 Sterling spot rate strengthened against US Dollar and Euro by around 3% Net debt as at 30 September 2010 (162.5) Pension deficit 5.9m (March 2010 16.2m) Net debt reduced by 10m 22
Facilities and covenants H1 ( m) 2010/11 Committed facilities 306 Net debt (163) Headroom 143 205m committed bank facility Maturity September 2012 $150m Private Placement notes Maturing 2015 and 2017 H1 H1 2010/11 2009/10 Covenant Net debt / EBITDA (1) 1.2x 1.7x <3x EBITA net interest cover (1) 22x 15x >3x Improving financial ratios (1): based upon proforma twelve month periods 23
Financial highlights Strong sales growth 24%, all regions double digit Excellent operating leverage 5% pts. improvement, all areas PBT more than doubled 50.5m, 104% Increasing return on sales 3.4% pts. improvement, 9.5% Strong free cash flow 33.6m, 96% conversion Robust financial metrics 22x, 1.2x Excellent progress on all key metrics 24
Agenda Overview and current trading Ian Mason Financial performance Simon Boddie Strategy update Ian Mason Continental Europe Klaus Göldenbot Q&A All 25
Group strategy Vision The world s distributor of choice Strategy International growth Electronics and Maintenance ecommerce Operating leverage UK profitability Priorities Set by each business Ensure alignment and clarity Increasing pace of strategy implementation 26
Business portfolio H1 2010/11 ( m) Revenue % of Group revenue Contribution % of revenue Market position North America 132 24% 16% No.3 Asia Pacific 73 13% 10% No.1 Continental Europe 187 33% 21% No.1 International 392 70% 17% No.1 UK 171 30% 28% No.1 Group 563 100% 21% No.1 Significant scope to improve returns 27
North America: key themes Allied growth formula 54 sales offices across North America Consistent strategy ecommerce focus Strong supplier relationships Sales and marketing led Targeting double digit sales CAGR 28
North America: actions and results 41% sales growth 100+% ecommerce sales growth ecommerce led virtuous cycle 20k new products, 14 new suppliers New ERP system implementation underway Consistent market outperformance 29
Asia Pacific: key themes Big growth opportunity Greater China High Market expansion Initiatives Opportunity to grow share Medium Australasia Japan SE Asia Acquire new customers Maintain existing customers Develop new customer segments Develop existing customers Low Medium Growth rate of available market High Market penetration Target: move from 12% to 18% sales CAGR 30
Asia Pacific: actions and results 27% sales growth 40+% ecommerce sales growth Strong Electronics led growth in Japan, 46% Offer improvement plan in China, 35% Strong growth in SE Asia & Australasia, 19% Service and efficiency benefits of regionalisation Leveraging Group strategic initiatives 31
Continental Europe: key themes Country FY09 Sales m Penetration FY09 AOF France 130 38% 17 Germany 80 19% 10 Market presence Sales presence Distributor presence Exports only Italy 50 18% 7 Other 90 15% 8 Continental Europe 350 21% 11 UK 340 100% 22 Market leader in Continental Europe Managed as single region Focus on sales and marketing, electronics and ecommerce Targeting sales CAGR increase from 4% to 8% 32
Continental Europe: sales & marketing Fundamentally reorganised the region 40% increase in marketing intensity Increasing AOF by 10+% Strategic suppliers performing well Investing in local sales resources 12 large customer wins Gaining share from smaller competitors 33
Continental Europe: Electronics Aligned with Group s Electronics strategy New products & production packaging success Strong quotes performance Huge potential/ strong growth eg Germany Transforming customers perceptions Electronics outperforming 34
Continental Europe: ecommerce Central to the region s strategy Market opportunity Eastern Europe 38% ecommerce sales growth Accelerating geographic penetration New Swiss website live Targeting Eastern Europe Exploiting regionalisation benefits Enabling geographic expansion 35
Electronics: key themes Expanding our product range Market Leading Technical Marketing 5x new product introduction rate New market leading products Global product range 3D CAD models 3 x catalogue offer online New production packaging capability Embedded Development Platform with Arm Easy selection and purchase from a growing range 36
Electronics: actions and results Fastest growing category globally New products and Production Packaging performing very strongly 87% growth in semiconductors (IC s) 18K new products introduced Successful launch of DesignSpark 18K members, 150K visitors in 3 months Transforming the customer experience 37
Maintenance: key themes Competitive position High Technology Expert Global maintenance growth initiatives Supplier partnerships RS branded products Value add Technology Specialist High Service Distributors ecommerce solutions Low Local Wholesaler Regional Wholesaler International Wholesalers Narrow Product range Wide Targeting above GDP growth in International 38
Maintenance: actions and results Taking market share from smaller competitors Outperformance in target technologies and with strategic suppliers Levelling product range across Europe 19 large customer wins in UK & Europe Successful RS Essentials range Good Maintenance growth in all markets 39
ecommerce: key themes Research the product / technology area they are looking at Customer Journey Customer support We will offer the best customer experience throughout the customer journey 40
ecommerce portfolio ( m) Revenue Revenue growth (1) Revenue share (2) North America 47 109% 36% Asia Pacific 27 42% 39% Continental Europe 98 38% 53% International 172 53% 45% UK 90 25% 54% Group 262 42% 48% Accelerating ecommerce performance (1) Adjusted for currency and trading days (2) Exit share 41
ecommerce: actions and results ecommerce marketing changing customer behaviour Improving customers price perceptions through in-journey marketing Significant growth in web only SME accounts ecommerce driving large account wins ecommerce enabling offline cost reduction New dedicated leadership of ecommerce ecommerce led business 42
UK: key themes Business objectives Maintain leadership of high margin immediate delivery business Leverage improved customer offers Develop incremental regular revenue streams Manage GM%, cost and cash effectively Targeting a return to FY08 profitability 43
UK: actions and results 14% sales growth 25% ecommerce sales growth Service/stock growing core business Successfully leveraging all Group offers Improved customer price perception Regular revenue streams driving growth Significant improvement in UK profitability 44
Key themes Continued strong underlying sales growth Strategic initiatives driving improved performance Transforming the customer experience in Electronics Accelerating ecommerce performance Taking share from smaller competitors in Maintenance Stable gross margin in H1 and excellent operating leverage Pre-tax profits more than doubled 45
Agenda Overview and current trading Ian Mason Financial performance Simon Boddie Strategy update Ian Mason Continental Europe Klaus Göldenbot Q&A All 46
Electrocomponents plc ANNOUNCEMENT OF INTERIM RESULTS HALF YEAR ENDED 30 SEPTEMBER 2010 12 NOVEMBER 2010 DELIVERING FOR OUR CUSTOMERS
Financial appendices 48
Impact of foreign exchange: by Business H1 2010/11 H1 2009/10 H1 2010/11 Growth Growth Foreign exchange reported Foreign exchange impact adjusted m m m % % International Contribution Continental Europe 39.4 29.0 (1.2) 35.9% 41.8% North America 21.4 10.3 0.5 107.8% 97.4% Asia Pacific 7.1 2.7 0.6 163.0% 117.6% International 67.9 42.0 (0.1) 61.7% 62.1% UK Contribution 47.8 38.6 0.0 23.8% 23.8% Group Contribution 115.7 80.6 (0.1) 43.5% 43.8% Process costs (62.1) (53.4) (0.7) (16.3)% (14.9)% Headline operating profit 53.6 27.2 (0.8) 97.1% 102.7% 49
Five year performance framework KPIs 5 year target H1 2010/11 2010 International sales growth 7-10% p.a. 29.6% (4.7)% International share of group sales 70+% 70% 67% UK contribution Stable Increasing Decreasing Sales via ecommerce 70% 48% (1) 46% (1) Underlying gross margin Stable Stable in H1 Intl:stable, UK:dec. Cost as % of sales (2) Reducing Reducing Stable Capex Below (3) depreciation Below (3) depreciation Below (3) depreciation Return on capital employed (4) 25%+ 22% 17% 1. Exit share, 2. International and Process Costs, 3. Including amortisation, 4. Headline operating profit expressed as a percentage of net assets plus net debt (12 months rolling period for H1 data) 50
Prior periods UK and International gross profit reallocation International Contribution H1 2009/10 FY10 H1 2009/10 FY10 H1 2009/10 FY10 As originally As originally Movements Movements Reallocated Reallocated reported reported m m m m m m Continental Europe 29.9 78.3 (0.9) (2.5) 29.0 75.8 North America 10.3 24.9 0.0 0.0 10.3 24.9 Asia Pacific 3.0 7.3 (0.3) (0.8) 2.7 6.5 International 43.2 110.5 (1.2) (3.3) 42.0 107.2 UK Contribution 37.4 80.2 1.2 3.3 38.6 83.5 Group Contribution 80.6 190.7 0.0 0.0 80.6 190.7 The Group has reviewed the allocation of costs associated with its component and production packaging offering. As a result costs which were previously charged in the UK where the work was undertaken have been reallocated to the reporting segments where the products were sold in the prior and current periods. This reallocation has no affect on any of the Group s profit measures. 51
UK gross margin 54.0% 53.0% Incremental gross profit 52.0% 51.0% 50.0% 49.0% 51.4% 51.6% 48.0% Price/ cost/ discount FX 49.1% New revenue streams 48.5% 47.0% H1 FY10 Margin Selling price Cost price Electronics pricing Underlying margin Foreign exchange Core margin Larger orders Electronics (prodn. pack.) H1 FY11 Margin New revenue streams delivering incremental profit 52